Goldman Sachs has agreed to pay $550 million to the Securities and Exchange Commission to settle charges of securities fraud linked to mortgage investments sold to investors, a person briefed on the matter told The New York Times’s Edward Wyatt.

Under the terms of the deal, Goldman will pay $300 million in fines to the S.E.C., with the rest serving as restitution, this person said. Goldman will not admit wrongdoing

Yves here. Goldman was seeking a global settlement, that is, to extinguish not simply the current suit on Goldman’s 2007 Abacus trade that is now the subject litigation, but current and potential future investigations.

The increase in Goldman’s market cap thanks to the announcement was roughly $3 billion. This already looks like a very good trade for Goldman. If the settlement was any broader than Abacus, (does “charges” mean filed lawsuits, or any potential action in this space?) this was a stunningly attractive deal for Goldman. The SEC will have been rolled.

Update 4:45 Details at the SEC website. This settlement is not bad, much better than I thought.

Per press release and consent decree (and note the NY Times was wrong in details):

Disgorgement of $15 million
Civil penalty of $535 million
Goldman admits making a “mistake” in the marketing materials
Goldman agrees to “reform its business practices”

The fine is VERY hefty relative to the size of the deal, roughly $1 billion and was higher than most anticipated for a settlement on this transaction. The SEC will distribute some proceeds from the penalty to investors, presumably ACA and IKB. Note also that any payment that to IKB and ACA via the SEC cannot be used by Goldman to reduce any claims against them via separate litigation:

To preserve the deterrent effect of the civil penalty, Defendant agrees that it shall not, after offset or reduction of any award of compensatory damages in any Related Investor Action based on Defendant’s payment of disgorgement in this action, argue that it is entitled to, nor shall it further benefit by, offset or reduction of such compensatory damages award by the amount of any part of Defendant’s payment of a civil penalty in this action (“Penalty Offset”). If the court in any Related Investor Action grants such a Penalty Offset, Defendant agrees that it shall, within 30 days after entry of a final order granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the Commission directs.

Yves here. IKB is suing Goldman separately, so this preserves the the civil fines independent of any damages that IKB wins separately. I’m not certain how standard this is, but this is a meaningful concession.

The SEC has also imposed a much more thorough review process on Goldman for residential mortgaged backed securities offerings, including CDOs, including a review by the legal department of all marketing materials. Outside counsel will review marketing materials, term sheets, and offering documents on any Goldman led deal. Review of final deal docs is likely part of current procedures, review of marketing materials and term sheets probably not. This may sound like a mere formality, but the practical effect is that Goldman would find it very hard to engage in a “rogue employee” or “whoops, that sort of detail didn’t rise to the scrutiny of the big dogs” defense.

This settlement is clearly limited to the 2007 Abacus deal and is much tougher than I expected. All in all, not bad. Tourre does not appear to be included; the consent decree has only Goldman as a signatory.

This is a climbdown for Goldman and Blankfein, who said the SEC charges were baseless and had no merit. Goldman has now admitted “a mistake” which is a formulaic way of admitting bad behavior while dodging liability. I wonder how much longer Blankfein will be at the helm.

Update 5:50 PM. Whoops, this is a defacto global settlement, despite the consent decree not saying so. Per Goldman’s announcement:

We understand that the SEC staff also has completed a review of a number of other Goldman Sachs mortgage-related CDO transactions and does not anticipate recommending any claims against Goldman Sachs or any of its employees with respect to those transactions based on the materials it has reviewed. We recognize that, as is always the case, the SEC has reserved the right to reopen those matters based on new information.

Yves here. So while the SEC consent is not LEGALLY a global settlement, for all practical purposes, it appears it is. I was hopeful that the exclusion of Tourre meant the SEC might move forward. I should have realized the dollar amounts attached (over $300 million) meant it was broader than the language of the consent decree suggested.

This falls squarely under the “quelle surprise” news category. I can’t recall a single NC reader who thought for a minute that this would go the distance, that Blankfein or any other fiend would go to the Bastille. As with taxes, that’s reserved for the little people. The FBI may pursue you for downloading music, but aristocrats are quite simply above the law.

As Greespan went to work for RMBS-CDS pirate John Paulson & Company, I suppose a few SEC insiders will now retire early for new jobs at Golden Sacks. This is getting more than a little tiresome.

Who managed the timing of the SEC announcement? Was it really necessary that it come less than an hour after the final passage of the financial reform bill. The action was initiated at the beginning of the final push for the legislation and brought to closure on the day the Bill passed.

I don’t buy that they decided to announce today to goose the markets. The documents were signed yesterday, you can’t keep this sort of thing secret for very long. too many people know. And goosing the markets one day, in the overall scheme of things, accomplishes bupkis.

I also don’t buy the theory that this coming right around the time of the announcement of the fin reform bill is good timing (whether or not Team Obama tried to get cute here). The economy still stinks. It WILL still stink by the fall. Voters will still be plenty mad at the banks by then. Pols show voters do not buy fin reform, they see the bill is a crock.

This settlement, even for those who buy the PR, comes out in the summer and competes with the fin reg news. From a timing standpoint, fall would be better. The “we’ve reformed the financial system” meme in the fall will be seen as not credible. Incremental announcements, that the powers that be are making what they contend is progress, would be more effective.

@Yves – fair enough. Why did the settlement get leaked at 3:45 PM – before the market closed? Why wasn’t it announced in the morning before the open (if the documents were signed overnight)? It’s been the talk of the afternoon financial shows – totally pushing FinReg off. Totally obscuring the terrible economic news today. Could it be in front of the options expiration tomorrow? I think the PTB are trying to buy time. They don’t really know how to fix this, and sort of hoping it gets fixed on its own. Or they might have another plan that we just don’t know yet.

I think the PTB are hoping the “record fine” makes it sound tough. It creates a nice bow to the perception that FinReg works – whether the polls show it or not. They are spinning the tale – and hoping to repeat it often enough that it works.

Might all be a little too tin foil hat for you, but I’ve been watching the MSM financial news a fair bit over the past year or so, and have felt that the economic spin is getting more intense. CNBC spent a lot of effort today in avoiding mentioning the seasonals in the jobless claims, the manufacturing data, etc. Haven’t heard one mention of the massive fall in the Baltic Dy Index in weeks. Guests being cut off, interviews skewed, giddy ‘journalists’, etc. John Williams (shadowstats.com) mentioned in a subscriber update that a network told him that they are under a “corporate mandate” to spin the news positively.

Again, perhaps a bit Oliver Stone (without the Chavez love), but I thought the timing of the settlement announcement and the complaint announcement showed how political this really was. There are far more concrete actions that the SEC could actually pursue (like the farce that is HFT).

Karl Denninger suggests the same thing:http://market-ticker.denninger.net/archives/2510-Yet-Another-Options-Expiration-Surprise.html
“If the decision was made and the settlement approved, ok fine. But why today, one hour before the market closes, with OpEx in the morning – with a bunch of SPX Puts and Calls open at the 1100 strike with many of them “in the money” at that point in time.
Now, of course, they’re not by nearly so much.
But if the clown-car brigade in Washington DC thinks this is in any way constructive, or that I should believe that the nearly 100,000 CALL contracts that traded today on Goldman (for expiry tomorrow!) were all “organic”, with absolutely no inside information or foreknowledge (with outsize profits for the “inside” folks) then you’re far more naive than I am. The $150 strike CALLs, in particular, recorded a one-day price “improvement” of seventeen hundred percent.
Nice, if you’re “lucky” enough to buy and hold them at the appointed time. 25,352 contracts on the $150 strike alone representing more than 2.5 million shares were in fact “lucky enough.”
I do not yet have reported times on them (and won’t until after the weekend) to know if this “luck” happened before or after the announcement hit the wire. I’ll look at it when the data is available to me, not that I expect anyone will care to investigate.”

The size of the offering is NOT Goldman’s profits. That’s like saying a broker made $200,000 when the price of the house it sold was $200,000. Goldman made a SPREAD on the deal which was considerably less than the face value (they contend they lost money, but so much is based on model assumptions I am skeptical of any calculation here).

Typical fees on a CDO were a point and a quarter to a point and a half. Normal profits on a billion dollar deal would thus be $12.5 to $15 million.

Godman’s profits on the deal(s) now swept neatly under the oval carpet may not cover the full wrist slap, but GS stock up over 4% probably puts more than a small dent in it. Either way it’s a travesty of injustice. Blankfein and Maontage should be in orange jumpsuits in the Bastille for their “shitty” deals. It beats the guillotine.

I think that’s the real point. The SEC (not wanting to upset the revolving door with the industry, among other things), picked a one-off tangential complaint that had some juicy quotes and the air of sophistication/complication necessary to try to convince people they were doing something. But it was sort of a weak complaint so they could settle with good reason. Haul some people before Congress, make it all look real, and then settle (with a nice announcement at the right time) for what looks like a lot of money.

It creates a nice appearance, but does absolutely nothing to actually unearth the fraud and corruption of sub-prime, CDO’s, ratings agencies, FNM, FRE, etc., etc. That stuff’s already well-known, but nothing will ever be done about it. There are so many better cases out there to pursue. How about the quarter-end Repo window dressing among others?

It was all an elaborate farce played out beautifully, as they also used it to bolster FinReg and the SEC during the debates. Nice when you can kill two birds with one stone. The icing on the cake.

So $550 million is what 5% of what Goldman paid out in bonuses last year? We have a corporatist President, a corporatist Congress, a Treasury stacked with Goldman alumni, and a lapdog regulatory agency run by a pro-Wall Streeter. Could this have turned out any differently?

Specifically, the second to last paragraph which reads as follows:
“Today’s settlement, if approved by Judge Jones, resolves the SEC’s enforcement action against Goldman related to the ABACUS 2007-AC1 CDO. It does not settle any other past, current or future SEC investigations against the firm. Meanwhile, the SEC’s litigation continues against Fabrice Tourre, a vice president at Goldman.”

Specifically, the second to last paragraph which reads as follows:
“Today’s settlement, if approved by Judge Jones, resolves the SEC’s enforcement action against Goldman related to the ABACUS 2007-AC1 CDO. It does not settle any other past, current or future SEC investigations against the firm. Meanwhile, the SEC’s litigation continues against Fabrice Tourre, a vice president at Goldman.”

Legally, the SEC can come back at any time on other deals, the settlement was clearly limited to one deal. But Goldman is claiming the SEC has concluded its investigation, ergo, the pressure is off Goldman. There would need to be new developments for the SEC to come back, it appears.

My belief is that the soft underbelly of the criminal banks is to make it immpossible for fiduciaries to do business with these ongoing criminal enterprises by putting them on notice they are violating their charge by so doing.
Any suggestions on how this can be accomplished?

Equally, how much is a company based fine going to effect the behavior of the individuals, for which this company is really just a vehicle for their own aggrandizement?

How do we get GS and more importantly a corporation like C back in the box? I think this is a move in the right direction.

Quella sorpresa positiva! And I hope that the investigations continue. To some extent, and in particular, because the integrity of the institution(s) doing the investigating has been tarnished, it’s disappointing that there isn’t more of a public process instead of the legal dealing and wheeling, which we’re so used to. The broader public needs to be made aware not only of GS-as-wealth-aggregator but also of the way GS operates.